PWRoot- bottom-line held up despite a sharp drop in top-line

Results Update

For QE31/8/2013, PWRoot's net profit dropped 3% q-o-q to RM9.6 million on the back of a 19%-decline in revenue to RM71 million. Compared to the same quarter last year, net profit was 5% higher while revenue was 13% higher. The revenue dropped q-o-q due to lower export. This led to a q-o-q drop in bottom-line.


Table: PWRoot's last 8 quarterly results

The q-o-q drop in revenue is very significant as the quarterly revenue in QE31/8/2013 was lower than that of QE31/5/2013 as well as QE28/2/2013. This could be a warning that its export drive may have hit a wall and future growth may be hard to come by.


Chart 1: PWRoot's last 26 quarterly results

Valuation

PWRoot (closed at RM1.90 yesterday) is now trading at a PE of 15 times (based on last 4 quarters' EPS of  12.30 sen). Based on the drop in revenue in the last quarter (QE31/8/2013), we must weigh the risk that PWRoot's growth in top-line and bottom-line may have come to a pause or may have even ended. As such, previous comparison of PE to growth (for computing PEG ratio) may not be appropriate now. Thus, I believe PWRoot is now fairly valued, with upside potential dependent on questionable prospect of further growth.

Technical outlook

PWRoot is in an uptrend after breaking above its horizontal line at RM0.63. Its immediate support is at the 20-week SMA line at RM1.89-1.90 & at the 40-week SMA line at RM1.74-1.75.


Chart 2: PWRoot's weekly chart as at Oct 29, 2013 (Source: quickcharts)

Conclusion

Based on good financial performance (albeit a sharp drop in top-line) & positive technical outlook, PWRoot remains a good stock for long-term investment. Due to concern about future growth prospect, I believe the stock is now fairly valued. Thus, the rating for the stock is now revised to a HOLD.

Note: 
In addition to the disclaimer in the preamble to my blog, I hereby confirm that I do not have any relevant interest in, or any interest in the acquisition or disposal of, PWRoot.